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Rental Property Tax Deductions
By: Richard Chapo
Own residential rental properties? This article discusses how income from those
properties impacts your taxes.
What Constitutes Revenue?
Generally, rental income is defined as any revenue you receive from the
occupancy or use of residential property. Rent, obviously, is included in that
revenue. Many owners are surprised to learn revenue also includes rent
advancements, expenses paid by a tenant and any security deposits not returned
to the tenant. In fact, revenue can also include amounts paid to cancel a lease,
even if you had to sue the defendant to get it.
Yeah, Yeah, But What Can I Deduct?
Tax deductions associated with rental properties are strikingly similar to those
found in any business. Technically, you can deduct any expense reasonably
necessary to “manage, conserve or maintain” the property. Obvious deductions
include mortgage payments, cleaning expenses, insurance premiums, service
payments such as landscape maintenance, repairs, maintenance, etc. Overlooked
rental property deductions include:
1. Expenses incurred in finding tenants,
2. Commissions paid to third parties that arrange for tenants,
3. Paying your accountant and/or lawyer,
4. Mileage for driving to and from the property [I said, “No more parties!”]
5. Depreciation of the property,
6. Depreciation of items in the property such as washing machines, furniture,
etc.
Imaginary Rent Deduction
A few creative property owners have suggested that they should be able to deduct
their customary and standard monthly rent if the property is empty. The argument
goes, “If the property is empty, I am not making revenue and should be able to
deduct the $1,500 that I am missing out on.” At first glance, this almost makes
sense. Sadly, it doesn’t fly from the perspective of the IRS. Since you are not
receiving revenues, your total revenues for the year will be reduced by the loss
rent. You can’t double dip by deducting the $1,500 from the already reduced
yearly revenues. The only things you can deduct are the expenses you incur
during this period, and only for so long as you are actively trying to rent the
place.
Rental properties are a great investment. Even more so if you stay on top of
your taxes.
About the Author:
Richard Chapo is CEO of
http://www.businesstaxrecovery.com - Obtaining tax
refunds for small businesses by finding overlooked tax deductions and credits
through a free tax return review.
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